ONGC once again loses out to China for oil assets in Africa

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By Ravi Kunder25 March 2010

In the absence of a domestic sovereign wealth fund backing, public sector oil explorer Oil and Natural Gas Corporation (ONGC), has once again lost the race to acquire energy assets to China's large state owned enterprise, the latest in a string of losses to its cash rich neighbour.

ONGC Videsh, the overseas arm of ONGC has been outbid by CNOOC, China's third-largest oil company in acquiring a 50-per cent interest in Uganda's oil fields.

Heritage Oil, the Jersey-based independent oil and gas exploration company, had struck a deal in November 2009 to sell its 50-per cent stake in Blocks 1 and 3A of the oil-rich Lake Albert Basin in Uganda to Italy's largest oil and gas company Eni S.p.A for $1.5 billion. (See: Heritage Oil to sell its Ugandan oil blocks to Eni for $1.5 billion)

Heritage Oil and Tullow Oil held 50 per cent stake each in the Blocks, but Tullow Oil acquired it partner's 50-per cent stake by exercising its pre-emption rights.

Tullow, which became the sole owner of the Blocks, had put 50 per cent of its interest for sale as the project required huge investments to build a 1,200 kilometre pipeline to the Kenyan port of Mombassa to export the oil as well as building a refinery.

ONGC Videsh had initially partnered with the UK's Scotland-based independent oil explorer Cairn Energy, which has oil production interest in Rajasthan, to bid for the 50-per cent interest.

After Cairn Energy backed out from the bidding, ONGC Videsh teamed up with Oil India and Indian Oil Company to make a $2.1-billion bid.

The country is finally planning to set up a $20-billion sovereign fund to aid state-owned ONGC to compete with its Chinese rivals in overseas acquisitions.

India currently produces 680,000 barrels of oil per day and spends close to $124 billion (Rs600,000 crore) to import 75 per cent of its crude oil requirement.

According to the Paris-based International Energy Agency, India's energy consumption is likely to more than double by 2030 to 833 million tons of oil equivalent, which would make the country's import bill soar to more than $248 billion if taken at an average price of $66 a barrel of crude.

Some of China's significant acquisitions and investments overseas in 2009

Acquirer

Target

Value (US$)

Country

Industry

Month

Notes

Shenzhen Zhongjin Lingnan (Chinas third-largest zinc producer)

Perilya Mining (zinc miner)

$29.8 million

Australia

Metals

February

Acquired 51 per cent stake

Hunan Valin Iron & Steel (Chinas ninth-largest steel producer)

Fortescue Metals Group (Australias third largest producer of iron ore)